Supply chain segmentation in retail

Simon Ellis |
April 11, 2011

What is perhaps new is the interest on the part of Retail driven in large part by the growth of private label.

Supply Chain segmentation is not new, despite recent articles to the contrary, as manufacturing companies have explored ways to manage parts of the supply chain differently for the varied requirements of product lines or categories for decades. What is perhaps new, is the interest on the part of Retail, driven in large part by the growth of private label.

Driven by complexity, and an increasingly diversified retailing industry (where many companies have a broad range of product categories, with different KPIs), segmentation is a way to address complexity where and when it is necessary, but reject it where it is unnecessary. At its core, supply chain segmentations is quite simple, in that it is about designing supply chains at a product category or family level based on the unique needs of those product groupings. Some examples of where segmentation lines might be drawn:

Short versus long-lead time products, where the former hold some level of fashion element and the latter do not.

High versus low gross-margin products, where the former may obligate higher service levels (and a greater tolerance for returns) than the latter.

High versus low innovation churn categories, where the former may require a more collaborative supply network than the latter that is characterized more as 'set it and forget it'.

\SKU proliferation, particularly with 'flavors and fragrances' may drive higher levels of postponement for some product categories (consumer products) than others (chemicals).

Global versus regional demand products, where the former will require global fulfillment capabilities and the latter will not.

Destination versus impulse categories.

These are just a few possible demarcation lines for segmentation, some of which will apply more to manufacturing, others to retail, and as we observed above, companies have been taking this approach for decades; yet, the evolving business marketplace is putting new pressure on supply chains and segmentations is a useful concept to dust off.